TCS hits $100Bn market cap: A new phase for India Inc?

A record created at the beginning of last week might set the stage for a phase of new growth highs for India Inc.

On April 23, the market capitalisation of Tata Consultancy Services Ltd (TCS) crossed the $100 billion milestone. It hit a high of $103 billion (Rs 6.8 lakh crore). The shares hit a high of Rs 3,557.00 on the BSE. Though the market capitalisation (m-cap) has slid from the day’s high, it has hovered around that level this week. TCS’ shares ended at Rs 3,454.80 on April 27, giving it a market capitalisation of $99.27 bn (Rs 6.61 lakh crore, at an exchange rate of Rs 66.62 to a dollar), according to the BSE.

This feat has thrown up the question, who is next? The spotlight is on Reliance Industries and HDFC Bank. Reliance Industries had hit a record high on April 27, registering a market cap at Rs 6.3 lakh crore. Next in line are ITC, Maruti Suzuki India and Hindustan Unilever. These companies make up the pack of possible $100 billion entities in India in a few years. TCS is now ranked 104 and Reliance 119 on the global list of companies by market capitalisation. HUL and Maruti are much lower in that order but the companies have been able to grow their market capitalisation at a faster clip over the past few years.

Market watchers are now asking if this is the beginning of a new phase of growth for Indian companies, where a bunch of them find mention in the global top 100 companies by m-cap.

But experts say crystal-gazing is pointless. The goalposts shift constantly in this game. After all, Reliance did break into the $100 billion club once, on October 18, 2007. That afternoon, 10.57 lakh shares of the company were traded, pushing the stock up by more than Rs 114, to its lifetime high of Rs 2,805. The m-cap hit Rs 4.07 lakh crore. The rupee was at Rs 39.9 to a dollar. It is Rs 66-67 to a dollar today. The timing is right for Reliance to go for a second attempt.

Given that a weaker rupee augurs well for TCS, which earns most of its Rs 1,23,100 crore annual revenue through exports, it is likely that the flagship of the Tata group is here to stay in the $100 billion club, or at least in the vicinity of the mark.

S Ramadorai, former managing director and vice-chairman of TCS, says any of the top 10 Indian companies by market capitalisation that has an export-oriented business can break into the $100 billion club, provided the rupee depreciates further. Ramadorai, who led TCS between 1996 and 2009 as MD, tells ET Magazine that the key to TCS’ success is the constant focus on technology, people and customer orientation.

Ajay Piramal, chairman of Piramal Enterprises and a director of Tata group parent Tata Sons, says: “We applaud TCS on this achievement, which marks a significant milestone for India Inc. Such accomplishments serve to create a ripple effect by infusing a fresh wave of optimism and aspiration among Indian corporates.”

MD and CEO of Kotak Mutual Fund Nilesh Shah points out that TCS achieved this growth without raising money from the market after its initial public offering. He identifies rapid growth, consistent and adaptable management and consistent profitability as the three key attributes that can make a company great. “TCS has all three,” he adds.

Soon, there will be at least three or four Indian companies in the $100 billion bracket, says Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services. This achievement has shown the robustness of Indian businesses, he adds.

Fund manager Kenneth Andrade also says this is inevitable, if India grows from a $2.2 trillion economy to a $6-7 trillion economy in the next decade. The Indian market has been kept afloat by capital flows for six-seven years. However, it is now entering a phase where corporate profitability will become the main driver. He sees the profitability of the Indian corporate sector doubling in four years. “It cannot happen without a bunch of Indian companies in the top bracket.”

Shah of Kotak, however, disagrees with this theory and says only HDFC Bank and Reliance Industries seem poised to enter the $100 billion club anytime soon. First, there is the issue of the moving goalpost, due to the rupee-dollar rate fluctuations. This keeps the $100 billion mark in rupee terms constantly on the move. Second, Shah says, the Indian economy at $2.2 trillion is still small and Indian companies will need to wait for the economy to grow.

Keeping the rupee factor aside, there will have to be a constant focus on profitability, along with turnover, to drive the market capitalisation of Indian companies towards $100 billion. Market capitalisation can be a tricky game and is never a flat race, say experts.

Take, for instance, Indian Oil Corporation (IOC), the biggest Indian company by turnover. It often makes the global 500 list of companies by gross sales. Last year, IOC came in at 161. But it is way behind on market cap, with its profit margins being an abysmally low 5%.

But public sector undertakings (PSUs) can play the m-cap game too. The year 2011 saw PSUs like Coal India and ONGC topping the Indian market cap league table for brief periods. HDFC Bank, currently at third position with an m-cap of Rs 4.98 lakh crore, had also raced ahead of Reliance for some time in early 2017.

Then there is the question of sustainability on companies that show fast growth in m-cap. Hindustan Unilever recorded a 59.9% growth in m-cap in a year to Rs 3.19 lakh crore, and the scrip is currently trading at a price-earnings multiple of 63. Maruti Suzuki, with Rs 3.3 lakh crore in m-cap, has seen its m-cap grow at a staggering 33% compound annual growth rate for three years. But ITC, which is ahead of both these companies at Rs 3.4 lakh crore, has actually seen no growth in m-cap in the past one year. It has registered a CAGR of 6% over the past three years.

To enter this higher echelon of the corporate world, says Shankar Sharma, the cofounder and chief strategist at First Global, Indian companies need to become global in their footprint. “Most large Indian companies do not operate in pure-tech space. This is one reason why we don’t have companies with $100 billion m-cap. Old-economy companies have clients across the world but cannot scale up like a tech company.” TCS entering the $100 billion club, says Sharma, is like a batsman hitting a triple century and should be celebrated.

Former Tata Sons director R Gopalakrishnan, who was also part of HUL’s top management before moving to the Tata group, says it makes him emotional to see two companies he has been associated with doing well. Taking the cricket analogy further, he adds: “TCS achieving $100 billion is undoubtedly fantastic, but it is like the crowning glory of one innings. Many more innings loom — to be played and to be won in the years ahead by the same batsman. But to use this triple century in one innings to predict more triple centuries by other batsmen is hope and ambition, rather than a likely outcome.”

Piramal says TCS has clearly marked out a pathway for others. “This is a brilliant example of how Indian players can create a global impact by leveraging a values-driven culture, robust corporate governance and a strong entrepreneurial spirit to ensure a constant state of transformative growth,” Piramal adds.

The biggest of Indian companies will seek their global place when seeking to grow inorganically, says Ramadorai. “I am sure they will rightfully aim for a position on the global scene. Acquisitions are an ongoing process globally, based on merits and synergies, and I am confident that Indian multinational companies will continue to play an active role.”

Shah of Kotak Mutual Fund says TCS’s success will surely rub off on brand India. “When a company reaches the $100 billion mark, it starts to create a brand name for itself. The brand value thus created rubs off on the country from which it originates. Brand India stands to gain significantly from TCS’ achievement. Beyond that, employee morale goes up, client opening become easy, growth becomes easier and as a company, you don’t ha ve to hard sell yourself to get clients once you reach that mark. You just have to keep up the quality of your delivery.”